On the Money

What do you think is true, that’s actually false?

Alan SteelWhere am I?  It’s only six hours by daily direct plane from Scotland and less than five hours flying back. English is the common language. The seafood is world class. Natives are super friendly. Summer daytime temperatures are typically in the high twenties centigrade. Beautiful beaches. 

Petrol is 58p a litre. Laws are based on Scots Law. So when you offer to buy a house and it’s accepted it’s a binding contact. Stamp duty is an average of 1% unlimited. Capital Gains Tax only 10%. Property is much cheaper than here. Their flag is a reverse Saltire. 

Where is it ? Here’s another clue…. I’m just back from a two week holiday there. Yes it’s Nova Scotia, Canada. 

When I tell people we used to have a holiday home there and still visit on holiday, a typical reaction is: “Why would you go there? Isn’t it freezing up there ?””

Go check the world atlas.  Its capital city Halifax is on the same line of latitude as Bordeaux and actually is further South than Milan. You fly down to Nova Scotia, not up.

I often use this example when raising a great question about investment beliefs, as in “What do you believe to be true that’s actually false?” Take deficits, for example. “Experts” tell us they’re bad for us. Surpluses are what’s needed to right our “economic woes” and make investment profits. How wrong can they be. Go check the numbers. 

I was born in 1947. Since then there have been nine times when deficits peaked and nine when surpluses peaked. The average three year cumulative return on the S&P 500 index following both scenarios makes interesting reading, with stock market performance following deficit peaks being on average four times better. Four times the return after deficits? Yes… that’s a fact. 

Yet “experts” still claim we have too much debt (deficit) and hanker for the “sensible surplus days” a la President Clinton.  Except they conveniently ignore that the S&P 500 index fell over 40% in the 3 years following the surplus peak in 1999.

In the past week I read the following headline… “80% Stock market Crash to Strike in 2016 , Economist Warns” The article goes on to quote “prophetic economist Andrew Smithers” warning US stocks are now about 80% overvalued. He goes on to liken now to 1929 and 1999, but fails to mention that years ago he said he’d only recommend clients to buy shares when the S&P 500 index fell to 500 itself.

I know he said it. I was in the room at the time. I can only assume his clients, if there are any left, are still sitting in cash, having missed out on one of the best Bull markets ever. 

Next up is “famed economist” James Dale Davidson who “correctly predicted the collapse of 1999 and 2007”. Oh really. As far as I can tell, back in 1992 he co-wrote  “The Great Reckoning” on “how to protect your wealth in the face of imminent worldwide depression and worse”. A year later he published  “The Plague of Bad Debt- how to Survive the Coming Depression.”

In both a number of ominous predictions were so far off the mark as to be funny, if it wasn’t so serious for those who followed his “advice”, missing out on 7/8 years of outstanding equity investment returns.  Davidson says to expect “soon” a 50% stock market fall.

In Nova Scotia’s South Shore it can be so foggy in the mornings pessimists change their plans for that day instead of being patient waiting for the sun to burst through.

Right now “experts”, as they were in February, are doing their best to convince us to run for the hills. Given their track record over not only the last six months but over many years, I’d say they haven’t the foggiest.  If you’ve invested in quality funds why not wait for the sun to burn through again? 

Alan Steel is chairman of Alan Steel Asset Management

Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.


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